CEOs Bullish Despite Katrina

Sept. 23, 2005--Even as much of the Gulf Coast lay wrecked by Hurricane Katrina, America's business leaders sounded an optimistic outlook on the economy in a recent survey.

According to the CEO Economic Outlook Survey, conducted by the Business Roundtable, an association of chief executives, 74% of CEOs expected higher sales, with 83% expecting the same in the pre-Katrina poll. Only 10% envisioned lower sales with 5% predicting the same before the hurricane.

The survey reflected the views of top executive officers managing more than 10 million employees and amassing more than $4 trillion in annual revenues. A third-quarter survey was gathered during the last weeks of August but did not reflect the potential effects of hurricane Katrina; a supplemental survey was taken and indicated declined, yet still bullish outlook toward the country's economic future.

The executives anticipated a 3.3% growth in real gross domestic product, slightly less than the 3.5% increase polled weeks earlier.

"While the economy as reflected in our surveys clearly took a hit, it does not appear to be uniformly negative," Hank McKinnell, chairman of the Business Roundtable and chairman and CEO of Pfizer, said.

The primary pessimistic view was seen in the sharp decrease in expected capital spending, one of the best barometers of future growth. The post-Katrina poll revealed a 14-percentage point slip (40%) from the pre-Katrina results (54%). This marked the first time in 2005 that fewer than 50% of those polled did not expect an increase in capital spending. It was also the most bearish outlook on capital spending since December 2003, when just 35% expected an increase back.

"Decreased capital spending is a cause for concern because these investments have been a significant driver of long-term economic growth. It is a number we will be watching in the next survey," McKinnell added.

The new survey also found that 61% of those polled expected the effects of the hurricane to be "moderately negative" with only 4% expecting it to be "strongly negative." Twenty nine percent saw higher energy prices as the primary source of any negative impact on their business, and 27% expected "damage to infrastructure and facilities" in the affected region as another possibility of a negative impact.

Fourteen percent actually saw a "moderately positive" or "strongly positive" effect on their business because of the hurricane -- mostly because of potential sales and employment figures that will surely come once the region gets back on its feet.

The survey also noted that a majority of those polled saw the impact off Katrina limited to a three to 12 month window (63%) with more than 30% predicting the window to be even shorter.

The CEO Survey has been taken quarterly since the fourth quarter of 2002 - the supplemental survey was taken between Sept. 12 and16.